Expert: Gary Lambert - 10/12/2009

Question
Hi...

Soon after I turned 18 I began applying for credit cards so that I could get one and start building my credit. Unfortunately I wasn't approved for any due to not having any credit history.

Later on, I received a pre-approved offer in the mail and I sent it back and they approved me for a Visa with a limit of $750. It has a 0% APR under $250 which I never go over, I have never missed a payment, and they're always on time.

In addition, I also have a couple department store (Macy's & Bloomingdales) that I rarely use and always pay in full each month because of the high APR.

I recently applied for another regular credit card through Chase because I bank with them and I liked the idea of their new Blueprint plan. I was denied and the reason they gave me is the following:

Your consumer credit bureau score from Equifax is too low. The following are the primary factors in your credit report that affected your credit bureau score:
Length of time accounts have been established.   
Too few accounts currently paid as agreed.
Too many inquiries last 12 months.
Amount owed on revolving accounts is too high.  

I have to assume it's the inquiries that did it. Now, my question is, if I keep paying my Visa on time and occasionally using my dept. store cards, will it rise at a reasonable rate? How long will it take for the inquiries to be removed from my credit? Is there anything I can do about it? Is ordering my free credit report something I should do any time soon, and if so, how soon?

Lastly, if I ever do need another regular credit card or want to switch to one that has perks that I would use, how many month/years should have passed before I even consider it?

Thank you so much for your help!

Answer
Hi Justin,

Thanks for asking your questions.  It sounds like I can help you stay on the right track.  The overall comment I want to make is for you to just sit tight where you are for the time being and make no other moves regarding your credit until you have followed my advice.  Here's why I say that:

The denial letter you received from Chase says that the main reason for your credit being denied is because your score is too low.  In the credit industry, this letter is a standard format.  It is formatted to show the top four reasons your credit score is too low with the main reason being listed first, 2nd most important being listed second, etc.  The first and most important reason your score is low is because your other accounts haven't been established long enough.  Credit card companies like to see a consistent payment history.  In other words, they want to see more months of credit experience before they will approve you to carry their card.  How many months is hard to say...they have their own algorithms in place to determine what fits their criteria.    

So, let's address the other three reasons and see what I can suggest.  There's not a lot you can do on the second reason, too few accounts paid as agreed.  From what you have told me, you have three open accounts.  The key is to have three open accounts that are showing activity.  In other words, if your accounts are showing a 0 balance, they are not helping you.  To achieve your maximum credit score, follow this plan...Keep your balance on any cards in the 25 - 30% of credit limit range.  In other words, if your credit limit is $200, your credit score will be maximized if you keep a running balance on each card of $50 to $60.

Regarding #3, credit inquiries don't carry much weight after 6 months has passed.  Time will take care of this if you'll just sit tight and not cause any inquiries.  

I can't really tell you why #4 is even on there, because you have told me that you are keeping your current Visa card at or below 33% of the credit limit.  Are the balances on the department store cards over the 25-30% level?

Regarding ordering a credit report, you can get a free credit report once per year by going to annualcreditreport.com.  Beware, any other website will force you to sign up for a "membership" with monthly charges.  DON'T go anywhere but www.annualcreditreport.com, where there is no "gotcha."

Justin, to sum it up, just be patient for a while.  You've got plenty of life ahead of you to establish a great credit score.  Spend time now looking at the accounts you have already established and either pay them down or charge them up until you can maintain the balances between 25-30% of the credit limit, make all your payments by the due date, and you'll see your credit score maximized within a few months.  

If you have any other questions and you feel like I can help, please let me know, and if you would vote on this answer I would be very appreciative.  Have a great day!  Gary Lambert